Skip to Content

Our Investment Fraud Attorney Helps Investors Recover Losses from Broker Theft in FINRA Arbitration

As an investor, you expect your broker to protect the funds and securities in your account. You do not expect your broker to abuse his or her access to your account, and the last thing you expect is for your broker to steal assets from your portfolio, but any failure to follow directions constitutes broker theft. Unfortunately, broker theft is a very real concern for investors, and in our experience, it is an all-too-common occurrence. 

Broker theft is illegal. It’s that simple. Brokers who steal from investors can face criminal penalties, and they can lose their licenses and registrations. They can also face civil liability—but it is up to investors to hold their brokers accountable.

Do You Have a Claim for Broker Theft?

In most cases, recovering investment losses from broker theft involves filing for arbitration with the Financial Industry Regulatory Authority (FINRA). Registered brokers are required to submit to FINRA arbitration for all investor disputes, and FINRA has the power to issue awards that investors can enforce in court if necessary.

Cases of broker theft can take several different forms, including:

Direct Theft of Investors’ Funds or Securities

FINRA Rule 2150(a) makes clear that broker theft is flatly prohibited, stating: “No [broker] or person associated with a [broker] shall make improper use of a customer’s securities or funds.” Under FINRA Rule 2150(a), “improper use” covers all forms of theft, including removing funds from investors’ accounts, using investors’ funds as collateral, and executing transactions using a customer’s assets for the broker’s personal gain. Some common examples of broker theft include:

  • Using investors’ funds to pay brokers’ debts
  • Using investors’ funds to pay for vacations
  • Using investors’ funds to purchase luxury items or make payments
  • Transferring investors’ funds or securities to the broker’s personal account
  • Transferring investors’ funds or securities to a family member’s account or shell company

Unauthorized Borrowing from Investors’ Accounts

Borrowing an investor’s funds or securities without authorization is also considered a form of broker theft. Under FINRA Rule 3240(a), unauthorized borrowing is flatly prohibited as well. While brokers can borrow from their customers in some circumstances, they must obtain approval and meet various other requirements to avoid an unauthorized trade.

Brokers will frequently borrow investors’ funds or securities with the hope of returning them before any suspicions are raised. For example, a broker may see an opportunity to invest a customer’s cash holdings, pocket the returns, and then restore the investor’s funds—all without the customer ever noticing that their funds were gone. Not only does this violate FINRA’s rules (and federal law), but it also frequently leads to investor losses when brokers’ illicit trades fail and they are unable to restore the value of their customers’ portfolios.

Failure to Supervise Resulting in Theft of Investor Assets

Brokers and brokerage firms can also face liability for theft by their colleagues, subordinates, and personnel. Under FINRA Rule 3110(a), brokers and brokerage firms are required to “establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.”

Since stealing investors’ assets is a violation of federal law and FINRA’s rules, the obligations imposed under FINRA Rule 3110(a) extend to taking appropriate measures to prevent the theft of investors’ assets. So, even if brokers are not directly responsible for stealing investors’ funds or securities, they can still be held liable for failure to supervise in FINRA arbitration under Rule 3110(a).

How Do You Prove Broker Theft?

Let’s say you suspect (or know) your broker stole from you. How do you prove it so that you can recover your losses in FINRA arbitration?

In some cases, broker theft will be fairly obvious from an investor’s account statements. One day the funds are there, and the next day they aren’t. With no other explanation, broker theft will be the obvious conclusion. However, even in these cases, it may still be necessary to obtain various other forms of documentation to prove that the broker (or someone else within the brokerage firm) has misappropriated or misdirected your funds.

In other cases, proving broker theft can be more challenging. When investors have a high volume of transactions, it can be difficult to trace where their funds are going, and it can be difficult to pin their losses on a particular transaction.

Additionally, there is a risk that brokers who are willing to steal their investors’ assets will also be willing to alter their investors’ account statements. As a result, if you have concerns about broker theft but you can’t identify any specific fraudulent transactions in your portfolio, you should not assume that everything is fine. If you have concerns, you should not ignore them, and you should be wary of relying on anything your broker tells you.

What Should You Do if You Suspect Broker Theft?

If you have concerns about broker theft, what should you do to protect yourself? We recommend that you take the following steps promptly:

  • Make copies of your account statements. If you can access your account online, print or download copies of your account statements dating back to before you suspect the theft occurred.
  • Withdraw your funds. If you are able to do so, consider withdrawing the remaining funds you have with the broker so that they are not at risk.
  • Preserve all relevant documentation. If you have text messages, emails or any other documentation that triggered your concerns about broker theft, be sure to preserve these so you can give copies to your investment fraud attorney.
  • Talk to an investment fraud attorney about your situation. If you are a victim of broker theft, you will need to hire an experienced attorney to represent you in FINRA arbitration.
  • Act promptly. In these situations, acting promptly can be critical. As a result, we recommend that you speak with an attorney right away.

Discuss Your Broker Theft Situation with an Investment Fraud Attorney at Zamansky LLC

Our attorneys have decades of experience helping investors recover fraudulent losses. To discuss your situation with an experienced attorney at Zamansky LLC in confidence, call 212-742-1414 or tell us how we can reach you online now. 

Client Reviews

“Jake Zamasky and his colleagues represented me in a FINRA arbitration case against a large multinational bank and succeeded in obtaining an award for the full amount of my investment losses. I would highly recommend the Zamansky firm for their experience in securities litigation, their level of detailed research and case preparation, and their ability to effectively fight for what’s right.”

Richard R.

“Throughout my entire case, Jake Zamansky was incredibly responsive and spent time walking me through each step of the process. He is professional and worked with my challenging schedule, even meeting with me nights and on weekends. He knew exactly which turn to take when it came to my case and yet was respectful of any decisions I wanted to make resulting in a positive outcome.”

Donald A.

“Jake Zamansky and his firm represented me in a FINRA arbitration case to recover investment losses. Jake and his team were very professional and worked very hard preparing for trial and then reaching a substantial settlement of our case. I would highly recommend them.”

William E.

“Jake Zamansky represented me in a FINRA arbitration case which allowed me to recover a substantial portion of investment losses. He is truly an expert in this space and I would highly recommend him to those investors who may have been been a victim of investment fraud.”

Chris K.

“Jake and his team did a great job communicating with me throughout the process of my lawsuit. I would recommend him to anyone looking to sue UBS for unethical practices.”

Mike A.
View More